Chapter 13 FAQ’S
(Note: the following answers to frequently asked questions about Chapter 13 Bankruptcy provide generalized comment on Bankruptcy law and procedure in Colorado and may not apply in all fact situations. They are not a substitute for consultation with an experienced attorney.)
1. Who can file a Chapter 13 plan?
Only individuals or a married couples (not corporations or partnerships) can file a Chapter 13, if their secured debts don’t exceed approximately $1,010,650 and their unsecured debts don’t exceed approximately $336,900. Those with larger debts must use Chapter 11 if they want to avoid Chapter 7.
2. Can my creditors stop me from filing a Chapter 13 plan?
No, creditors cannot stop you from exercising your right to file under Chapter 13. The key issue is whether your Chapter 13 plan meets the requirements of the law and experienced legal counsel is invaluable to help you in this regard.
3. After having my car repossessed, a house foreclosure or other legal problems, can I still file Chapter 13 and stop these actions?
Yes, Chapter 13 stops almost all types of court actions until you have a chance to decide what you want to do with the item.
4. How does Chapter 13 basically work?
A Chapter 13 plan permits persons with a regular source of income to pay part or all of their debts under the protection and control of the bankruptcy court. Commencing 30 days after filing your petition and plan of repayment with the court, you generally will pay the court a fixed sum of money per month on your old debts, and pay your current monthly expenses directly to your creditors.
The bankruptcy law requires that the payments you make through the plan to unsecured creditors have a value of at least what the creditors would have received if you had chosen to file a Chapter 7 case. It also requires that you make a “best effort” which generally means pay all of your disposable income (Income minus living expenses) to the Court for three years to five years. The length of the plan is determined by a calculation required by the law. As you can see, preparation and justification of your budget is very important in making a plan that will be accepted.
5. For what kinds of situations is Chapter 13 best suited?
Generally, Chapter 13 can be preferable where:
– Mortgages and car loans need to be caught up
– Large tax debts exist
– Equity in property is substantial
– Co-signers need protection from your debt
– Child support arrearages need to be caught up
– Non-dischargeable Chapter 7 debt such as fraud, willful injury
– You have a strong desire to repay debt
In a typical case with these problems, the plan would provide that one would make all future payments on the secured loans to the creditors on time and pay a fixed amount to the court each month which the court would use to pay the trustee, attorney, taxes and secured loan arrearages, with any excess to go to the unsecured creditors. In addition, if one owed more on a secured debt than the property is worth (except real estate), then the plan can provide for payment of only the value of the property to the creditor to satisfy the lien, and treat the rest of the debt as an unsecured debt.
6. Must you be employed to use a Chapter 13 plan?
No, but you must have a steady source of income, such as self employment or a sole proprietorship, a pension, unemployment insurance, disability insurance, Social Security, trust income, spousal maintenance or child support.
7. What about new debt after the Chapter 13 is filed?
Chapter 13 mainly deals with your old bills. Your usual living expenses for rent or mortgage, food, clothing, insurance, and utilities will come out of your remaining income after your Chapter 13 plan is paid. You will need special permission of the Court to incur substantial new debt beyond what is on your budget, such as a new car loan or mortgage loan during the Plan.
8. Are my co-signers on consumer debts also protected?
Yes. If someone cosigned for you on a loan or purchase, he will be insulated from the creditor as long as your Chapter 13 plan stays in effect and pays 100% percent of the cosigned debt, including interest and late charges. Keep in mind that you can choose to pay 100% percent of a co-signed debt, yet only pay a small portion of your other debts.
9. How long does a Chapter 13 plan last?
The usual time frame is 36 months to 60 months, depending on certain calculations. More often than not, the 60-month duration will be required.
10. Can I consolidate all my bills?
Yes, except your post-petition mortgage, car loan, and other secured payments. Unless special circumstances exist, your post-petition secured loan payments will be paid on your own, outside the Chapter 13 plan. Any secured loan payments that you missed prior to filing your plan (pre-petition payments) will be included in the plan.
11. If I filed bankruptcy in the past eight years, can I still file a Chapter 13 plan now?
You can file a Chapter 13 to reorganize and pay debt any time, but cannot obtain a discharge of debt in a Chapter 13 if you received a discharge in a Chapter 7 in the four (4) years prior, or a discharge in a Chapter 13 case in the two (2) years prior.
12. How does Chapter 13 affect taxes that I owe?
This is one of the benefits of Chapter 13. Usually, your taxes will be one of the first creditors paid by the plan, and interest and penalties will not accrue during the plan. Some older taxes may be treated similar to general unsecured debts, and even though not paid in full, will be discharged at the end of the plan.
13. How does Chapter 13 affect my general unsecured creditors?
So long as your plan is in effect, and you pay your ongoing expenses, all creditors are prevented from pursuing you or your property in legal actions. Also, no new interest or penalties accrue on the unsecured debts unless your plan is dismissed for your failure to comply with its terms.
14. Do I need a cosigner to file Chapter 13?
15. What if I run into additional financial difficulty during the Plan?
If the difficulty is temporary, we can usually work out a “catch-up” deal with the Chapter 13 Trustee or your mortgage company. If you are unable to catch up, but can still make plan payments, with good cause we can move the Court to modify your plan to change the length of the plan or the amount of the payments. The key is to keep in touch with your attorney as soon as difficulty in making plan payments occurs, rather than let the plan fall into default.
16. What happens at the end of my Chapter 13 Plan?
If you have made all of your plan payments, the plan ends and any remaining dischargeable debts are discharged.
For further information regarding the bankruptcy process, click on any of the links on this page. Or contact us to arrange a free consultation with an experienced attorney, without cost or obligation on your part.
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